Myanmar suffering slow-motion bank run, reports say

Central bank struggles to supply cash and defend currency amid post-coup turmoil
Central Bank of Myanmar
The Central Bank of Myanmar

Myanmar’s depositors continue to remove funds from commercial banks, despite caps on withdrawals and other efforts by the military government to contain outflows.

The withdrawals are occurring amid widespread protests against the armed forces, which seized power on February 1.

Radio Free Asia and Reuters have reported that the Central Bank of Myanmar is struggling to keep commercial banks adequately supplied with cash. Reuters stated that the CBM is not returning bank reserves to commercial banks, leaving them starved of cash to distribute.

Long lines have formed at banks, which limit the number of withdrawals per day, according to a report in ElevenMyanmar.com. Depositors are draining ATMs, most of which are not functioning, the report said.

In some cases, ElevenMyanmar.com said, informal traders are providing cash from their own account on a commission basis to those unable to wait. The report quoted one witness as saying it was impossible to withdraw dollars, and taking out small amounts of local currency took hours.

Commercial banks have capped ATM withdrawals at rates between 150,000 and 300,000 kyat ($96–192). The central bank itself previously capped ATM withdrawals at 500,000 kyat on March 1, and forbade withdrawals from individual accounts above 2 million kyat.

The military government cut online banking services for several weeks in March and April as part of a wider disruption of the internet.

A Myanmar opposition newspaper, the Irrawaddy, reports that businesses are struggling to meet payrolls and trade credit has dried up. Reuters indicated that farmers were also struggling to get credit for planting.

The CBM’s deputy governor, Win Thaw, said on May 7 that the banking system was secure. “They can trust their money in the banks,” Win Thaw said.

The CBM announced in late April it would allow unlimited withdrawals from accounts opened from May 3. The central bank did not reply to emailed requests for comment from Central Banking.

Even before the coup, Myanmar’s financial sector had serious vulnerabilities. The IMF’s 2018 Article IV consultation warned of a high number of non-performing loans and inadequate capital reserves.

The fund recommended that the CBM deal with failing banks by “strengthening capacity, policies and procedures for bank resolutions and setting up a dedicated resolution team”.

Economic crisis

The World Bank recently projected severe losses for the Myanmar economy in 2021, after economic growth fell drastically in 2020.

In a report published in April, the World Bank estimated 2020 GDP growth at 1.7%, a very severe reduction from its estimate of 6.8% the previous year. It now forecasts that the country’s economy will suffer a very severe contraction in 2021, with GDP contracting by 10%. The International Monetary Fund similarly forecasts an 8.9% decline in GDP in 2021.  Earlier this year, before the military coup, the World Bank had forecast that Myanmar’s economy would grow by around 8% in 2021.

The World Bank report observed that the banking crisis was a significant contributor to Myanmar’s economic difficulties. “Financial sector risks have been heightened by banking staff shortages, elevated withdrawals, and the debt servicing and cash flow challenges faced by firms”, its report said.

The kyat has fallen sharply against the dollar since the coup. In February, it traded at about 1,329 kyat to the dollar. As of May 13, the rate was about 1,559 to the dollar. On May 12, the CBM sold $6 million at a rate of 1,650.6 kyat to the dollar.

Anne Booth, a professor emerita of economics at the School of Oriental and African Studies in London, said in an email that the military regime is producing an accelerating capital flight. This “will inevitably lead to a depreciation of the kyat”, she said.

Booth said the junta might impose capital controls or a currency peg, but she doubted these would help Myanmar’s economy in the long term. She said it was unlikely that the junta would be able to secure significant financial assistance from abroard.

“I would be surprised if China is prepared to give much financial aid,” she told Central Banking. The Thai, Japanese and Indonesian governments were also highly unlikely to support aid to the junta, she said.

The central bank does not appear to have changed its policy rate since the pandemic began in spring 2020, when it lowered the rate from 10% to 7%. Its website is currently inaccessible.

Bank workers strike

The turmoil in the banking sector began soon after the February 1 coup, which displaced the elected government. From February 8, a wave of strikes supporting the civil disobedience movement swept the country, disrupting the commercial banking sector and the central bank. 

Gareth Price, a research fellow at Chatham House, told Central Banking that a previous military regime had nationalised the banks. This might be a possible option for for the current junta, but could have a limited effect if striking bank workers refuse to work.  

Bank nationalisation “would send very negative messages to both foreign and domestic investors”, Booth noted, adding “perhaps the military don’t care”.

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